Commercial property values 'will fall by 25pc'

Commercial property values are set to fall more than 25pc in the next two years, according to a leading property agent.

In one of the gloomiest outlooks since the market turned in August last year, Atisreal is predicting capital values will fall 17.9pc this year and a further 8.6pc in 2009.

The forecasts are based on a combination of factors hitting the market, including the credit crisis, further interest rises and the faltering economy.

The research also concluded that rents across offices and shops are likely to see significant falls. According to Atisreal, office rents in the City are set to drop more than 20pc by 2010, when they are expected to bottom out. The retail market will see a more gradual fall in rents, led by retail warehouses, which could fall 15pc by 2010.

Dan Bayley, Atisreal head of national lettings and sales, said: "Office rents in Central London will continue to decline this year and next as the effects of the downturn worsen. We will also see many more incentives for occupiers being offered.

"However, Central London offices will stabilise and see growth again in 2010, while the rest of London and the UK are likely to take another year to recover."

Overall the company is predicting that rental yields - the benchmark against which property is priced - will hit 7.4pc by the end of the year and 8pc by the end of 2009.

Despite the downbeat analysis, the company said there was some good news in the retail sector with discount chains such as Aldi, Lidl and Primark continuing to trade well and holding up rents.

Ian Parish, head of retail at Atisreal, said: "The retailers that are not doing so well are the furniture or bulky goods operators."